Setting Your Financial Future When You're Broke

I know what you're going to think when I say "finances": Something of the "BLARGH!" variety. I've definitely been guilty of mental vomit when the topic money has come up, but I was also raised by immigrant parents. So no matter how broke I've found myself over the years, I've ALWAYS found a way put money in the "future home buying" fund. Because anyone who was raised by immigrants knows, it doesn't matter if you have less than $2 cash on your person, as long as you own property, you've won life. But you don't necessarily have to be an immigrant to set up your financial future when you're a broke 20-something. Anyone can just go ahead and embrace that immigrant spirit! I can almost feel you running to the bank to open a savings account, that's how palpable your excitement is about the money secrets I'm about to share with you.

If you can pay rent and buy food, you're doing pretty well. If you have health insurance, I high five you forever. Approaching your finances when you're broke is about the basics; the necessities you need to live. Once you've whittled your life down to food and shelter, you can start thinking about what your finances are going to look like in the future, because chances are, your employment situation will improve, and someday you'll be earning more money than you are now. That's the plan, anyway. And when you get to this point, you don't want to be paying off debt, or starting from scratch with your credit score and savings. Or if you don't eventually start making serious cheese, it will obviously benefit you to have thought about your financial future in advance. You need to start setting things up NOW, even if you are devoted to a life of canned beans and no heating. Here are 4 things you can start doing immediately to begin setting up your financial future, even if you're broke right now.

1. Reduce your credit card limit

If you have a credit card, reduce the limit immediately. Or if you're opening a credit card, start with a low limit. If you're dead broke, there's no reason your credit card limit should exceed $500. The reason you have a credit card right now isn't so you can buy shit you can't afford. It's so you can start building a credit rating (more on that next) and perhaps help yourself out from time to time between paychecks when you need to pick up some extra groceries. Only spend what you can afford to pay back in the short term. A credit card is not an excuse for sweeping frivolous spending under the carpet. Think of your credit card as a responsibility rather than an entitlement or a luxury, because accumulating credit card debt and interest over long periods of time isn't exactly a recipe for future financial stability.

2. Maintain good credit

Along with managing your credit, spending is ensuring you're working towards building a solid credit rating, which is one of the reasons you should have a credit card even when you're broke. And follow these golden rules of good credit card behavior:

  1. ALWAYS pay the minimum amount due.
  2. Never be late or default on payments.
  3. Try to keep your credit card usage to 30% or under at any given time (which is the desired amount for "good" credit).

Repairing bad credit down the track is going to be a nightmare. Take this from an Australian who moved to the US four years ago with no credit history at all, and had to start from scratch, building credit at 27 years old. For the first two years I was here, no one would give me a lease nor a credit card. If it's that hard to start from nothing, imagine how hard it will be to come back from devastating your credit rating.

3. Stop making frivolous purchases

Take the subway instead of a taxi. Buy the generic supermarket brand instead of the double priced name brand. PUT THE $200 SHOES DOWN AND WALK AWAY. Think about the way you spend, and start cutting out the unnecessary stuff. I'm not saying you can't enjoy yourself, but just keep in mind where your finances are right now. $5 happy hour vodkas and a subway ride home are just as fun as $15 cocktails and cab rides, and your bank account will thank you for living within your means in years to come. Don't make decadent, fleeting purchases now that will adversely effect your finances down the road. Invest in things like a nice bed. You sleep on it every night, and a good night's sleep is necessary for you to be productive the next day. But you don't need a $500 designer purse right now. Making good spending choices is literally just about choosing your battles and remembering not to piss your money against a wall, because it will just dry up and disappear.

4. Make saving your priority

Even if you make a minuscule paycheck, have a savings account. Even if you only put $10 in a week, that's something. A good way to approach savings is putting your money in the bank every time you refrain from making a frivolous purchase. If you have the money for a $20 cab, you have $20 to put in your savings. So don't take the cab, and transfer yourself the money instead. Slowly, you'll see your nest egg start to grow. If you're anything like me (competitive, sometimes obsessive), saving will become a game where you're playing against yourself to see how much you can make your investment grow in a month. At the very least, you'll be able to breathe a sigh of relief when every time you see that extra balance, knowing that even as you're hand washing your laundry in the sink and drinking instant coffee, you're setting yourself up for some kind of future.

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